Bank loan moratorium alert! Extendable by 2 years - What Centre, RBI told Supreme Court on repayment

In a major development in terms of moratorium period on repayment of bank loans, the Centre and RBI on Tuesday told the Supreme Court that the moratorium period amid the COVID-19 pandemic is extendable by two years. Solicitor General Tushar Mehta, appearing for the Centre and the Reserve Bank of India (RBI), told a bench headed by Justice Ashok Bhushan that several steps have been taken for stressed sectors and the economy has contracted by 23 percent due to the pandemic.

The bench said that it would hear on Wednesday the pleas which have raised the issue of interest being charged on instalments which have been deferred under the central bank's scheme during the moratorium period amid the COVID-19 lockdown.

The apex court had earlier asked the Centre and the RBI to review the move to charge interest on deferred EMIs during the moratorium period.

Meanwhile, an analysis by CRISIL indicated that the moratorium on loan repayments provided by banks at the behest of the Reserve Bank of India (RBI) has provided much-needed liquidity support to mid-sized sub-investment grade (rated CRISIL BB+ or lower) companies. Moreover, the analysis says that the scheme also prevented a sharp weakening of their credit profiles. While the moratorium ended on Monday, debt restructuring announced by the RBI recently can play a crucial role in supporting the credit profiles of the mid-sized companies.

CRISIL analysed over 2,300 non-financial companies (from its rated portfolio) that availed of the moratorium to tide over Covid-19 pandemic-induced cash-flow challenges, after categorising them by rating, sector and size. It revealed divergent trends.

Three out of four entities that availed of the moratorium are rated in the sub-investment grade. Most of them were grappling with a slowing economy before the pandemic began. The severely curtailed business activity that followed in the first quarter of this fiscal had cramped cash flows, so the moratorium came as a big relief. Only one out of four companies that availed of the moratorium is rated in the investment grade (rated CRISIL BBB- or higher). They took recourse to the moratorium to build a liquidity cushion for exigencies in the near term.